Capital Gains Tax in Australia: The 50% CGT Discount and Property Rules

Capital Gains Tax (CGT) is not a separate tax in Australia. A net capital gain is added directly to your assessable income in the year a CGT event occurs — most commonly the sale or disposal of an asset — and taxed at your marginal income tax rate. Shares, investment property, units in a managed fund, collectables, personal-use assets above $10,000, and cryptocurrency held as an investment can all trigger a CGT obligation.

The 50% general CGT discount

Individuals and trusts who hold a CGT asset for at least 12 months before the CGT event are entitled to a 50% discount on the net capital gain. You therefore pay tax on only half of the gain. For assets qualifying for the small business CGT concessions, an additional 50% active asset reduction may also apply, potentially reducing the taxable gain to zero when combined with the retirement exemption.

How a capital gain is calculated

The capital gain is broadly the sale price less the cost base, which includes the purchase price, stamp duty, legal and conveyancing fees, and any non-deductible capital costs added later. The date of the CGT event is generally the date the contract is signed, not the settlement date — an important distinction when a sale straddles two financial years.

You can choose either the discount method or the indexation method (frozen at the September 1999 CPI). For the vast majority of assets acquired after that date, the discount method produces the lower taxable gain.

Main residence exemption and the 6-year rule

Your main residence is generally exempt from CGT. Under the ATO's absence (6-year) rule, if you move out and rent out your home, you can continue treating it as your main residence for up to six years and still claim the full exemption when you sell — provided you do not nominate another property as your main residence during that time. This is one of the most powerful concessions in the personal tax system, but it requires deliberate record-keeping and an election.

If you use the property to produce income before it is sold, a market valuation at the date it first produces income is essential to apportion any later gain between the exempt and taxable periods. Without that valuation, the ATO may assess the entire post-acquisition gain.

Capital losses offset capital gains

Capital losses can only be offset against capital gains — never against salary, business, or investment income. Losses are applied first to gains of the same type, then to discounted gains, and any net unused capital loss carries forward indefinitely until a future capital gain absorbs it. This makes timing asset sales across two financial years a legitimate planning tool.

Timing, record-keeping and structuring

Because CGT is crystallised on the contract date, the timing of an agreement can shift a gain into a year where your marginal rate is lower. Maintaining a register of every asset — purchase date, cost base additions, and intended holding period — allows Freedom Taxation to model the taxable gain before you sign a contract, and to identify whether a different ownership structure would have been more efficient. For investors with a portfolio, CGT planning is the single highest-value annual conversation.

The 12-month holding period is the difference between paying tax on half a gain and paying tax on all of it — rarely does a single day matter more in Australian tax.